For the month of May 2018, South Africa experienced record outflows of ZAR 50.159 Bn from sellers of JSE shares and SA Government bonds. This exceeded the October 2008 outflows of ZAR 48 Bn in the height of the Global Financial Crises (see below)

No doubt this is a result of the broad emerging-market risk-off sentiment triggered by the Trump "trade wars", but local conditions such as our shocking -2% GDP print didn’t help either. We like to examine the 12-month average of these net flows as shown by the thin grey line above as this is a good warning system of sub-par JSE returns in the future when this turns negative. This warning worked exceptionally well in the 2008 Global Financial Crises and the 2015-2017 sideways market. As can be seen, it’s on the cusp of turning negative again and this will depend on net foreign purchases figures for June/July.

Most of the damage originated from net foreign sellers of our bonds:

You can see here we prefer to use a 6-month average as a medium-term warning of muted future JSE returns and this warning was triggered when the JSE peaked in April. If you are an Analytics subscriber, you can track this daily and receive SMS alerts on your EMRI chart.

Here is a view of the net foreign purchases of JSE shares:

This is less constructive as a bull/bear market signal and hence we look at the 12-month average to determine what this is telling us.

Both net foreign purchases of JSE equities and SA Bonds provide useful clues to the future fortunes of the JSE, but it’s usually best to look at them combined for the most accurate signals. If one has to choose only one however, the Bond market normally gets it right more than the equity market.

The use of this data and many others to determine future JSE market risk is discussed in detail in our upcoming seminar on Saturday 21st in Sandton. If you would like to attend, register here.

Dwaine van Vuuren is a full-time trader, global investor and stock-market researcher. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT.com (US based) and PowerStocks Research (now Sharenet Analytics) into companies used by hundreds of hedge funds, brokerage firms, financial advisers and private investors around the world. An enthusiastic educator, he will have you trading and investing with confidence & discipline.

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